Although the economy is still in crisis and the threat of a fall election is on every politician’s mind, summer is traditionally when parliament slows down and this year won’t be any different. But there’s one important item on the government’s agenda that we will hopefully see progress on over the coming months: a single national regulator.
Last week finance minister Jim Flaherty appointed Doug Hyndman, the chair of the BC Securities Commission, to head up a department that will oversee the transition to one regulator. It’s a move that’s been welcomed by many in the financial industry, including 75% of Canadian CEOs sampled in a Canadian Business Online CEO poll.
But while a lot of people are in favour of one regulator (right now each province has its own securities commissions), there are still a number of folks who are vehemently opposed. I’ve been following this story for a while now I previously covered it for Advisor.ca and one of the more interesting debates on whether or not there should be a single regulator took place last September at a Montreal Economic Forum sponsored event between Ian Russell, president and CEO of the Investment Industry Association of Canadaand Peirre Lortie, ex-president and CEO of the Montreal Exchange.
Before I get into that, however, I should say there have been improvements in the regulatory system in the last year. The passport system, which Hyndman helped create as chair of the CSA passport steering committee, was implemented in March 2008 to streamline some of the cumbersome processes that have hampered businesses from setting up shop in multiple provinces. The big problems, however, are that Ontario did not sign on to the system and there’s still one regulator for each province. Still, it seems to be working. Some rules have been simplified now advisers and other financial services employees only have to fill out one form to practice in other provinces, though they still have to pay fees to each individual securities commission.
Back to the debate. Russell, who is for a single regulator, said that people who support the passport system, but not a regulator, are of the “if it ain’t broke don’t fix it” mind. But, he argued, the system is broken, adding there needs to be one national voice that can speak for the entire Canadian market.
Russell pointed out that having multiple regulators makes it difficult to prosecute white collar crime. “The provinces can enforce criminal statutes in their legislation and have done so effectively from time to time…but why not more frequently, particularity with the shortcomings of federal enforcement?” asked Russell at the debate. “This can be traced to limited resources and expertise.”
Another argument of his is that Canada can’t contribute to international meetings because they don’t have one person speaking on the industry’s behalf. He explained that the SEC chose Australia over Canada for a mutual recognition pilot project because the States wanted to deal with one, central regulatory body.
Lortie countered Russell by saying better enforcement and increased competitiveness won’t necessarily improve with a single regulator and points to America’s Securities and Exchange Commission as an example. “Centralization is not proof that it’s going to work,” he said. “There’s evidence that the monopoly the SEC enjoys in the U.S. is undermining competitiveness of the U.S. market.”
He also said a national regulator would hurt small businesses (though he didn’t say exactly how), and added that [75%] of issuers on the TSX have a market cap of less than $50 million.
While the spirited debate went back and forth for a while, the bottom line, says Russell, is that the provinces who are resisting a single regulator Alberta, Ontario and Quebec are worried about their fees. If one body is put into place, only one fee will be collected. So you can see why the provinces that bring in the most dough are the ones opposed. “Most of the 13 jurisdictions charge fees, not because they’re doing anything with them it’s used as a revenue generator,” said Russell.
While there are pros and cons for both sides, I think Flaherty should make sure a national securities regulator is created sooner than later. While it likely won’t improve much in the way of enforcement (the SEC didn’t catch Bernie Madoff, who was sentenced to 150 years in prison yesterday), it will mean the rules governing white collar crime and virtually every other financial regulation will be streamlined and easier to understand.
We also shouldn’t underestimate the power in a national voice. Now that Canada has a reputation of being a regulatory role model, at least compared to other developed nations that have been hit hard by the recession, there’s an opportunity for the country to help other jurisdictions improve their financial systems. But, who would speak for Canada in the current system? The OSC? The ASC?
There will be bumps in the road to be sure, but a single national regulator is the way to go.
Advisor.ca: Regulatory system “broken”, says Russell
Advisor’s Edge Report: Managing the mosaic